Special Interests Line Up for 59

Recently I criticized Amendment 59, the measure that would forever direct refunds from the Taxpayer’s Bill of Rights to Colorado politicians. I wrote:

Don’t be fooled by claims that the new measure is just about education. As one representative of the “yes” campaign noted in a September 1 e-mail, the measure (which advocates are calling Savings Accounts for Education) would “relieve pressure on higher education, health care, transportation and other core services.” In other words, because the new taxes go to education, the legislature can transfer other funds from education to whatever it wants.

Today Peter Blake makes the same point for the Rocky Mountain News:

Although it is nominally designed to provide money for P-12 (formerly K-12) education, and the Colorado Education Association has kicked in $85,000, the ballot issue is drawing support from a wide variety of groups.

The Colorado Bar Association has contributed $25,000, Colorado AARP $15,000, the Colorado Medical Society $5,000. Even Newmont USA, a gold mining firm, gave $15,000.

But the biggest giver has been the Denver Foundation, with $280,000 to date. That’s just a fraction of what it’s prepared to invest. It deposited $1 million into its own issue committee in July, and $720,000 remains to be transferred.

Why? Said foundation chief David Miller: “As I understand it, SAFE does more than just support education. If it passes, it would free up general fund dollars for health care, which is why the Colorado Health Foundation is a big supporter.”

It’s kicked in $200,000.

[Carol] Hedges [of the Colorado Fiscal Policy Institute] confirmed the broader, less advertised, purpose of SAFE. “A dedicated source of funding for schools could reduce the pressure on the general fund, and in turn allow legislators more opportunity for investing in other priorities, such as health care, higher education and transportation.”

Hedges’ organization has set up its own issue committee to help promote SAFE.

SAFE is a lie. SAFE stands for “Savings Accounts for Education,” but the measure would boost funding for whatever programs the legislature wants.

It is also a typical example of “concentrated benefits, dispersed costs.” Blake notes that SAFE’s “promoters have piles of money and endorsements.” Much of this money is coming from people who want a piece of the tax revenues or other political favors. The recipients of the tax dollars — for whom benefits are concentrated — have a big incentive to fool Colorado voters into approving it. The funders — among whom the costs are dispersed — have little incentive to spend time or money opposing the measure.

Of course a big problem with special-interest warfare is that it promotes ever-higher wealth transfers. Such forcible transfers of wealth benefit some at the expense of others and waste resources in the process. But eventually, to the extent that the policy reaches its logical conclusions, everyone is forced to fund everyone else in a battle to consume the pie.

The alternative is liberty, in which people interact voluntarily, trade to mutual advantage, and focus on producing a bigger pie, rather than fighting over the crumbs.

Am. 59 Would Impose New Forever Net Tax Hike

A version of this article appeared in the September 7 Colorado Daily.

Am. 59 would impose new forever net tax hike

by Ari Armstrong

Those wishing to forcibly transfer more money from those who earn it to those who want it constantly review the benefits (real or imagined) of higher tax spending. What they generally ignore are the costs.

Sure, when the government transfers money from Alice to Ben, Ben gets to spend the money on something he wants. But Alice has less to spend on her needs and those of her family, and those with whom Alice does business also suffer.

When people evaluate economic opportunities, they tend to move to where they can keep more of what they earn — to spend, invest, or give away as they see fit — and live and work as they deem best, rather than as politicians demand. We Coloradans enjoy a relatively strong economy in large part because it remains a relatively free economy. Higher taxes threaten to alienate vibrant businesses, entrepreneurs, and young workers.

Higher taxes also reduce liberty. People have a right to enjoy the fruits of their labor. Regardless of whether politicians and activists mean well in forcing some people to surrender their money to others, the practice is morally wrong.

This November, Colorado voters will decide whether to respect individual rights or to expand the tyranny of the majority when they vote on Amendment 59, a new, forever net tax hike.

Notably, Amendment 59 is brought to us by much of the same crew that brought us Referendum C in 2005. Legislative Council publishes a couple of interesting documents online about Referendum C. The Council’s projection for the net tax hike for the 2005 Blue Book was over $3.7 billion for five years. The new projection is $6.1 billion. Moreover, the measure will permanently increase state spending.

Yet, even though Colorado voters approved a net tax hike just a few years ago expected to raise over $2 billion more than supporters originally suggested, the higher-tax crowd now want billions more. And let us not forget about the tax-funded FasTracks of 2004, the expected costs of which have exploded from $4.7 billion to $7.9 billion.

Don’t be fooled by claims that the new measure is just about education. As one representative of the “yes” campaign noted in a September 1 e-mail, the measure (which advocates are calling Savings Accounts for Education) would “relieve pressure on higher education, health care, transportation and other core services.” In other words, because the new taxes go to education, the legislature can transfer other funds from education to whatever it wants.

Also beware of claims that the measure “does not increase tax rates.” The way that the Taxpayer’s Bill of Rights works is that the state must refund taxes that are collected over the limit. So, while Amendment 59 would not impact the rates on taxes collected, it would impose a massive net tax hike by wiping out the refunds.

At this point, Colorado taxpayers might reasonably ask how much is enough. Is there ever a point at which taxes are too high? The simple fact is that there will always be those who cannot afford to buy everything they want with the money they earn or solicit from voluntary contributions, and who turn to politicians to get the rest.

The Colorado tax budget could double, triple, or expand ten fold, and still the taxers would cry that more still is needed.

Ari Armstrong is a guest writer for the Independence Institute and the editor of FreeColorado.com.

Update: As an article in today’s Rocky Mountain News points out (though I didn’t have space to include the points in the op-ed), Amendment 59 would also phase out Amendment 23, which automatically increases K-12 spending every year, and set up a rainy-day fund, yet those reforms are possible without the net tax hike. Andrew Romanoff and his Democratic pals are essentially threatening Colorado voters: give us more tax money, or we’ll refuse to fix existing problems.

Berny Morson, author the newspaper article, also reports, “Exactly how much money is involved is by no means clear. The legislative staff’s five-year financial projection shows no excess revenue that would be refunded to taxpayers, Romanoff said. But opponents say the amount could be substantial when the economy again hits good times.” Colorado voters should remember that the measure wipes out the TABOR refund forever.

Economist Swings By Colorado

The Economist thinks it knows why Colorado has gone to the Democrats (via Paul). More Californians, more Hispanics.

But there is a more important reason for the Republicans’ woes: their elected representatives are bonkers.

In the 1970s the state party came under the sway of an anti-tax, anti-big government group known as the “House crazies”. This included Tom Tancredo, now a congressional scourge of illegal immigrants. The House crazies eventually joined forces with an equally fierce group of social conservatives rooted in Colorado Springs, headquarters of the evangelical Focus on the Family. …

More than one lawmaker has got into trouble for comparing homosexuality to bestiality. The small-government wing remains incensed that voters suspended a tax-restraining measure in 2005, even though it was crippling the state’s finances.

This is part right, part wrong, and part stupid.

Let’s start with the stupid. How exactly is forcibly preventing Colorado businesses from hiring workers from Mexico and elsewhere consistent with an “anti-big government” stance? Instead, Tancredo represents the populist wing of the Republican Party that has alienated both metropolitan sophisticates — Colorado is a highly educated state — and Hispanics. (It turns out that people tend not to vote for you when you threaten to forcibly round up their friends and neighbors and kick them out of the country.)

Now on to the wrong. The claim that taxes restraints were “crippling the state’s finances” is just recycling The Denver Post’s garbage. What was crippling the state’s finances was the insatiable spending habits of politicians.

What The Economist gets right is that Republicans have alienated independents and secular free-marketeers with their incessant calls for faith-based politics. Republicans complain that the left has been spending money like crazy. Well, maybe if the Republicans hadn’t constantly berated and condemned homosexuals, they wouldn’t have induced rich homosexuals to fight back. (Not that that’s where all the money is coming from.) Only Republicans act surprised when people get offended when they’re told they’re going to hell, tearing apart the culture, corrupting the youth, and engaging in sex comparable to bestiality. Who ever would have thought?

It turns out that Westerners get a little nervous when a Republican running for governor gets a running mate who claims we have no constitutionally-protected freedom from religion.

But Republicans finally seem to be figuring some of this stuff out. For example, Bob Schaffer, who has claimed he wants to end all abortion, recently came out against Amendment 48, which seeks to define a fertilized egg as a person. However, now Schaffer just looks like a spineless jerk. He told the Rocky Mountain News, “I think there are other strategies and tactics that get us far closer to advancing the cause of human life.” Is that squishing sound water in your shoes? We’ll see whether Schaffer’s dodge can save him. Meanhile, his opponent, Mark Udall, has strongly endorsed the separation of church and state. Does that matter? I’ll put it to you this way. I cannot think of a single issue other than that where I agree with Mark Udall (though I’m sure there’s something). Yet, this November, I’m going to hold my nose and vote for him. At least he knows what he believes on the matter and isn’t afraid to say.

Initiative Killers

In leading up to a story about American expatriation, I’ll start with a personal encounter with bureaucracy.

I’m starting up a small-scale side business that involves mail order. While mail order outside of Colorado poses few problems, mail order within Colorado is a royal pain. There’s actually a web page called TaxColorado.com, sort of the antithesis of FreeColorado.com, that takes you to the Colorado Department of Revenue.

One of the documents there describes the sales-tax nightmare in Colorado. If you’re selling everything from a set location, you can figure out all of the relevant sales taxes, then charge all your customers the same tax rate. But if you’re trying to ship items elsewhere in Colorado, matters are considerably more difficult.

Sellers are supposed to charge sales tax for all regions in common between the buyer and seller. I live in Westminster. Westminster spreads over two counties. Thus, several rates apply: Colorado, the RTD region, the football stadium region, the cultural tax region, the county tax, and the city tax. If I sell to somebody else in Westminster who lives in the other county, that’s a different tax calculation. Here’s a description of the RTD tax region:

The Regional Transportation District (RTD) levies a sales/use tax of 1.0% effective January 1, 2005. The RTD boundaries include the counties of Denver, Boulder, Broomfield (except certain areas immediately adjacent to I-25 and Highway 7 interchange), Jefferson, Adams (west of Box Elder Creek), Arapahoe (south of I-70 west of Picadilly Rd. to Jewell, then west of Gun Club Rd. to Quincy, then generally west of Monaghan Rd. including Arapahoe Park and Aurora Reservoir), and Douglas (northern portion plus Highlands Ranch), and parts of Weld County that have been annexed by the City of Longmont and the Town of Erie since 1994.

In the northern portion of Douglas County, the RTD boundaries consist of the city of Lone Tree (original Lone Tree), all annexed areas of Lone Tree, the Acres Green area, and the Park Meadows Mall (in unincorporated Douglas County and not in the city of Lone Tree).

You’ve got to be kidding me. In addition to all of the work of starting a new business, I now have to figure out which buyer does and which does not live the district described above. When I called the Department of Revenue to explain that this creates a logistical nightmare, the woman on the phone said, in essence, that’s the way we do things around here.

I seriously considered two alternatives to starting this small-scale business, a venture that will probably lose me money for at least a couple of years. The first and most appealing alternative was simply to not start the business. Why spend so much effort and risk so much money only to put up with so many hours of bureaucratic hassle? It almost wasn’t worth it to me. The second alternative I considered was to set up shop in a state with no sales tax. How many other small-scale operations have been shut down or driven out of state because of Colorado’s tax hassle? And Colorado is considered to be relatively business-friendly!

As I’ve reviewed in the past, other things equal, people tend to move to states with more economic liberty. It should come as no surprise, then, that U.S. economic controls inspire some people to set up shop outside of the country. It’s not that other countries are necessarily more free, but other regional attractions, coupled with increasingly stifling controls in America, can encourage some people to leave.

U.S. News reports:

…Matt Landau appears very much at home in Panama. One might even be tempted to call him an old hand were he not, at age 25, so confoundingly young. Part owner of this lovely boutique hotel in Panama City’s historic Casco Viejo, he is also a travel writer (99 Things to Do in Costa Rica), a real estate marketing consultant, and editor of The Panama Report, an online news and opinion monthly. Between fielding occasional calls and text messages, the New Jersey native is explaining what drew him here, by way of Costa Rica, after he graduated from college in 2005. In addition to having great weather, pristine beaches, a rich melting-pot culture, a reliable infrastructure, and a clean-enough legal system, “what Panama is all about,” he says, “is the chance to get into some kind of market first.” …

In his recent book Bad Money, political commentator Kevin Phillips warns that an unprecedented number of citizens, fed up with failed politics and a souring economy, have already departed for other countries, with even larger numbers planning to do so soon. … [M]any… are entrepreneurs, teachers, or skilled knowledge workers in the globalized high-tech economy.

If American economic controls become more stifling, we’ll lose more of those people who drive our prosperity. The possibility of getting “into some kind of market first” has little to do with the region and much to do with the economic controls of the region. It’s not as though Americans have run out of markets: it’s that high taxes and increasing controls have made getting into new markets more difficult or, in many cases, illegal.

Our “souring economy” is due to two main things: the housing crisis and high fuel costs. Notably, both of these problems were caused by politicians. Yaron Brook explains how politicians mucked up the housing market. High energy costs are the direct result of a decades-long campaign by environmentalists to shut down energy production and divert resources to “alternative” fuels such as corn gas (which has also increased food prices).

We still live in a vibrant and relatively strong economy, filled with opportunities. I love Colorado and I love the U.S. Still, the more politicians here trample economic liberty, the more free-spirited creators and producers will look elsewhere to fulfill their dreams.

TaxTracks Blows Budget — Surprise, Surprise

Kevin Flynn of the Rocky Mountain News reports:

RTD conceded Friday that it cannot deliver the FasTracks program as promised to voters four years ago.

The program, originally budgeted at $4.7 billion when voters approved a sales tax to support it, rose to $6.1 billion last year and is poised for a substantial increase next month during budget talks with the elected board. …

The program has been clobbered from two sides, with huge increases in the cost of construction materials and fuel, and a slowdown in the economy that has cut into the revenue RTD expected from the sales tax that underpins the financing.

Let’s go back to basics. There is absolutely no reason for rail to be tax-subsidized at all. If rail lines offer a real economic benefit, then people will gladly pay sufficient fares to keep them in business. Rail lines easily can exclude non-payers, so that objection is gone. If the concern is the small fraction of poor riders, then a market rail service is perfectly free to price discriminate, say by offering discounted passes to the poor. Especially for non-peak travel, such price discrimination would add to the rail’s revenues, as most costs are fixed. Alternately, those who wish to voluntarily subsidize transportation for the poor are perfectly free to do so. By relying on a sales tax, rail forcibly transfers money away from some poor people to some rich people, and that’s wrong even according to egalitarianism.

Atop those economic reasons rests the simple fact that it is morally wrong to force people who don’t use rail to subsidize those who do. People have the moral right to control their own income, to decide for themselves whether to fund rail, whether to use it, whether to invest in it, and whether to subsidize other people’s transportation.

Now TaxTracks has run into the problem that the sales tax, set as a percentage of sales in the region, is subject to economic downturns. Notably, a real loan is not. A real loan is what a marketized RTD should have obtained. A real loan is what RTD could have paid off with paying users, if its services actually are demanded. RTD is complaining also about increased costs, but at the same time, presumably, more people are riding rail to avoid the gas pump.

On a free market, perhaps RTD still would have had to cut back or restructure with changing economic conditions. But, on a free market, RTD would not have made promises to taxpayers that it cannot keep.

Tax Hikes Part II

Referendum C was supposed to be the net tax hike to solve all our problems. Now, even though Referendum C pulled in dramatically more tax money than expected, Colorado’s Democrats are proposing a new round of spending hikes.

In a June 24 e-mail (delivered early June 25), State House Speaker Andrew Romanoff announced, “A new initiative will give us a chance to fix the fiscal mess in Colorado’s constitution. The proposal is called SAFE: Savings Account For Education.”

The older SAFE stood for Sane Alternatives to the Firearms Epidemic. Call this one Statist Alternatives to the Freedom Epidemic. (I think somebody used the same acronym against the older SAFE, but I don’t recall who.)

Or call it “Referendum C, Part II.” Supporters of the new measure, “backed by a bipartisan coalition of business, education and civic leaders,” are using the same game plan.

Romanoff writes:

Colorado’s constitution contains conflicting commandments: one provision reduces revenue, while another increases spending. The net effect: chronic shortfalls in health care, higher education and other “optional” programs.

Referendum C brought us some relief: a five-year time-out from the revenue limit and a permanent fix to its ratchet effect. Hundreds of thousands of Coloradans are better off as a result, including 700 individuals with autism, Down syndrome, and other developmental disabilities, who will no longer be stuck on decade-long waiting lists for vital services; 25,000 at-risk children, who will be able to attend high-quality preschool and full-day kindergarten; and 50,000 uninsured children, who will receive medical coverage. (Click here for an annual report on Referendum C.)

Unfortunately, Referendum C’s time-out expires in 2010 -– jeopardizing much of our progress.

The obvious solution is to simply repeal the provision that increases spending. Cynics observe that Democrats supported that spending-hike measure precisely to undermine the Taxpayer’s Bill of Rights.

Romanoff fails to mention a detail about Referendum C: it permanently increased state spending. It was not merely a limited “time-out;” it increased the base level of spending forever. But that forever net tax increase is not good enough for the left; no spending hike is ever good enough. They want to seize even more of our money by force.

The entire point of Romanoff’s proposal is to forcibly redistribute even more wealth. He wants more welfare for health care, more welfare for education, more welfare for practically anybody who claims to need it. (By dedicating new funds for education, legislators can use other funds for whatever they please.) The cost is liberty. The result is that Coloradans who earn that money and who oppose the tax have no say in how their money is spent. That’s wrong.

People have the right to spend their income how they see fit, whether it’s on their own children’s health costs or education, a down payment on a house, a retirement fund, or a charity of their choice.

Romanoff repeats the same misleading claim he used for Referendum C: “SAFE does NOT raise tax rates or touch the constitutional right to vote on taxes.” While it’s true that it doesn’t raise the rates, it certainly raises the net amount of taxes that people pay.

There is one difference this year. While Referendum C passed in rolling economic times, this year people are feeling the pinch of high gas and energy prices (thanks to the stifling controls on energy production imposed by Romanoff’s comrades), along with housing problems. However, so long as a large body of people buy into Romanoff’s redistributionist ethos, the tax hikers will be back again, and again, and again.

The USA

The other day I was discussing Health Savings Accounts with a friend. I pointed out that my wife and I love our account, which saves us hundreds of dollars every month by allowing us to buy high-deductible insurance and pay out-of-pocket expenses pre-tax . I joked, “Now all we need is a Pet Savings Account for the vet, and we’ll be set.”

Obviously that’s not going to happen, but it occurred to me that a Universal Savings Account could include other important expenses — food, housing, clothing, etc. Call it the USA. Why should the working poor and middle class pay taxes on their basic needs?

Unfortunately, the country in which we live is no longer compatible with the values of the USA. Instead, the working poor and middle class are hammered with a net Social Security tax of nearly 15 percent, which makes it incredibly hard for many people to get ahead. Even if some are spared most other income taxes, they still pay all sorts of taxes on food, housing, cars, etc.

Ultimately, though, what we need are not new specialized tax breaks, but reductions in government spending, accompanied by general tax cuts.

Lakewood Drops Food Tax

“Starting next year, Lakewood residents will no longer have to pay a sales tax on groceries,” Tille Fong reports for the May 12 Rocky Mountain News. City Council voted to repeal the tax. This follows a 2003 citizens’ drive to repeal the tax in Littleton.

Fong adds, “The $4 million that the city receives annually from the grocery tax will be offset by the $3 million that will be raised by revoking a 1 percent sales tax waiver granted to Colorado Mills and Wal-Mart.”

I’ve never been a big fan of discriminatory taxes that unfairly advantage new, big businesses. If lower taxes help business, then the sales tax should be reduced for all businesses.

Recently I discussed taxes with a friend, and the conclusion was that it’s bad to tax productivity, because taxing it discourages it. It’s bad to keep taxing the same thing with the same owner over and over, as happens with property and cars. The result is that you never really own your property; you must in effect pay rent to the government to keep possession. It’s bad to tax investment.

Sales tax on consumer goods is least-bad of the options listed, but that creates the problem of taxing the poor for food, housing, medicine, etc. If government exempts certain things, like food, then that applies to expensive steaks and seafood — hardly essentials. Whether government exempts “necessary” items or “poor” people, that generates a bureaucracy to decide what’s exempt and to enforce the rules.

A good rule, though, is that the fewer the types of taxes, the better. The lower those taxes, the better.

Brook: End Tax Social-Engineering

Tax season is now behind us. But it’s not. Yaron Brook of the Ayn Rand Institute points out in an article for Forbes that, with 66,000 pages of tax code controlling our lives, tax day is every day.

After offering numerous examples of the way that the tax code skews incentives, Brook summarizes:

Tax policy works by attaching financial incentives to a long list of values deemed morally worthy. If you want to maximize your wealth come tax time–and who doesn’t?–you must look at the world through tax-colored glasses, “voluntarily” adjusting your behavior to suit social norms and thereby qualifying for tax breaks. In this way, the social engineers of tax policy preserve the impression that you’re exercising free choice, while they’re actually dispensing with your reason and your judgment.

Brook then briefly describes the proper alternative:

Government’s job is not to dictate your values but to protect them. In a free country, you choose values and then use your own money as a tool to achieve them. But a value-rigged tax policy reverses this cause and effect–it uses your money against you, bribing you with tax breaks that let you keep some of your earnings in exchange for abandoning your preferred values.

Brook’s entire article is worth perusal. Brook’s topic is delimited, so he does not touch upon all of the misincentives of the tax code. A huge problem is that high taxes reduce the incentive to produce. Taxes also reduce the division of labor. Work you do for money is taxed, while work you do for yourself is not taxed. Thus, rather than spend their time working in their field of speciality, many people divert some of their time to doing things they don’t especially enjoy and aren’t particularly good at, such as fixing the car or painting the house. But these are just two more examples of the way that taxes distort incentives. The combined effects are massive.

The Sin is the Tax

So-called “sin taxes” are appropriately named, because it is morally wrong to forcibly transfer wealth even if the taxes discriminate against politically-incorrect behavior. Here’s the latest from the Rocky Mountain News:

…Denver Democrat [Rep. Jerry Frangas] very quietly drafted a bill introduced this week that would raise alcohol taxes 2 percent to cover all of Colorado’s 180,000 uninsured children.

The tax of 11 cents, for example, on a $5.49 six-pack of Budweiser, would raise about $57 million for the state children’s health care program. When paired with federal matching funds, Frangas said it would provide up to $150 million.

In other words, through the magic of federal “matching” welfare payments, Frangas can capture a portion of the national income tax by imposing a state sales tax. That way, Frangas can also force people in every other state to fund the health care of select Coloradans. Ah, the glories of federalism in the modern age.

But socialized medicine is fine, “for the children,” right? On the contrary, generally parents have a moral obligation to fund their own children’s health-care expenses, and they should plan their families and expenses accordingly. Of course, parents whose children suffer unexpected, catastrophic illnesses already benefit from a wide array of voluntary charity programs (often in addition to insurance payments), as is appropriate. All of us want to see innocent children taken care of, which is exactly why even today’s mixed economy often provides for their needs and why a truly free market would do so even better. However, unlike force-funded welfare, voluntary charity is more likely to discourage dependency and irresponsibility on the part of the parents. Offhand, I don’t have a good estimate for how much socialized medicine “for the children” displaces private insurance (and discourages parental responsibility), but the figure is large. And, obviously, socialized medicine “for the children” is merely a stepping stone to socialized medicine for everyone. As one advocate of politically-funded medicine reportedly said, “[S]ome of you may think of me as an incrementalist. I prefer to think of myself as a sneaky sequentialist.”

If politicians really wanted to help, they would repeal the interventions that have artificially increased the costs of health care and insurance and reduced access to medical services especially among the poor (as Lin Zinser and Paul Hsieh explain.)

What about a tax on alcohol? I oppose sales taxes in general. But, so long as there is a sales tax, it is wrong to discriminate against some people (in this case consumers of alcoholic beverages) and select legal activities. No doubt advocates of the tax on alcohol will argue that the tax would fund a “worthy” welfare program while discouraging a vice. But it is the proper role of government to protect individual rights, not to socially engineer behavior desired by politicians. While obviously alcohol can be abused — as can many other properly legal products — there is nothing inherently rights-violating or irresponsible about drinking alcohol. And purchasers of alcohol ought not be uniquely forced to subsidize other people’s children.